China backs Europe for win-win results amid prolonged debt crisis

11:34, May 10, 2011      

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It may be an uncomfortable anniversary to celebrate. The sovereign-debt crisis continues to cloud the euro zone's prospects a year after EU finance ministers agreed on a 750 billion euro bailout package to prevent the spread of the Greek debt crisis and safeguard the euro.

Now China seems to face a dilemma: to bail out the euro and offer a real alternative to its dollar-based reserve system, or to cut its euro investment as the crisis persist.

INVESTMENT AT STAKE?

While Greek and EU leaders have denied mounting speculation concerning a restructuring of Greece's debt, uncertainties are still hanging over the markets as to whether the country would be able to pull itself out of the debt quagmire.

Eurostat, EU's statistical office, released data in late April, showing the Greek fiscal deficit stood at 10.5 percent of the country's gross domestic product (GDP) last year. The deficit was much lower than the 15.4 percent in 2009 but markedly above a previous forecast of 9.6 percent.

Meanwhile, Greece's public debt reached 328.6 billion euros (479.2 billion U.S. dollars), accounting for 142.8 percent of the country's GDP, the highest among the 17-member eurozone, according to the data.

Other weak eurozone members are also suffering grave debt problems. Ireland, the second eurozone country after Greece to seek a bailout, saw its deficit-to-GDP ratio rising to 32.4 percent last year. Portugal's public debt accounted for 93 percent of its GDP last year, a 10 percent jump compared with that of 2009.

The deficit-to-GDP ratio in eurozone economies is predicted to keep growing in the coming years and the debt-ridden EU members are unlikely to see the ongoing crisis ease until 2014 or 2015, said Chen Xin, director of economic studies at the Institute of European Studies of the Chinese Academy of Social Sciences.

Additional investment could be at stake on a weakening euro, especially when some sovereign debt holders will have to take losses for defaults under a new bailout mechanism which is to take effect in 2013.

In recent years, China has been seeking to diversify some of its foreign exchange reserves away from the U.S. Treasury debt and into other investments, including euro-dominated debt.

Though not very optimistic about the European economy, China Investment Corporation, China's sovereign wealth fund, will continue to invest in Europe, the fund's chairman Lou Jiwei told the Boao Forum for Asia held in Hainan in April.

Lou added that investment returns from the economic bloc so far was "not bad."


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Source: Xinhua
 
 
     
 
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(Editor:梁军)

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